Commentary: Greenspan wants to let some air out, not burst the bubble

CBS.MarketWatch.com

NEW YORK (CBS.MW) -- In his semiannual Humphrey-Hawkins report to the Congress, Fed chief Alan Greenspan noted more than once his concerns that stock prices are too high. Each time he said it, the major stock averages dipped, only to recover as he changed the subject. See full story. Also see Market Snapshot

It's almost as though Greenspan wanted the market to decline?if only a little. If he thought stocks should really tumble, he would have hinted strongly that the Fed was about to raise interest rates .

Thank goodness for small favors! A lot more is riding on the stock market remaining strong than your investments or mine?like economic growth here and abroad.

It would not take much to knock stocks off their lofty perch. That?s because the twin engines that normally power the stock market are in a stall.

Profits have stopped growing. By the government?s official measures, corporate earnings fell in last year?s second and third quarters compared with the same period the year before. And by a number of private calculations, this decline extended into 1998?s fourth quarter as well.

If this holds up, it would be the first time that profits have fallen for three quarters in a row since 1990?a year in which the stock market declined.

The other engine is interest rates on Treasury bonds. Their decline through most of last year is what helped the stock market rise in 1998, for the eighth year in a row, even as earnings were slipping. But rates on government bonds have been climbing since the end of last year. See .

That leaves stocks vulnerable to a discouraging word?especially when it comes from someone as powerful as Alan Greenspan. So, Doctor G., be careful what you wish for?your wish may come true!

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